Thursday, January 17, 2019

Markets rise on rumors the US is considering lifting China trade tariffs

Dow rose 162 (but well off session highs), advancers over declines better than 2-1 & NAZ gained 49.  The MLP index was fractionally lower in the 247s & the REIT index added 2+ to the 344s.  Junk bond funds retreated & Treasuries were weak.  Oil inched up pennies in the 52s & gold was off a tad at 1291 (more below),

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The US reportedly is considering lifting tariffs on Chinese imports to give Beijing a reason to make deeper concessions in ongoing trade talks between the 2 countries.  Treasury Secretary Steve Mnuchin proposed lifting all or some of the tariffs, according to reports.  The goal is to push forward trade talks & get China's support for longer-term reform.  Trade Representative Robert Lighthizer, however, is resisting the idea, worried that it could be considered a sign of weakness, sources said.  Stocks reacted swiftly to the report, bouncing higher in mid-afternoon trading.  The Dow was up 245 (1%), but then settled back.  The US & China have been meeting to hammer out trade issues after both sides launched tariffs at each other last year.  The US imposed duties on $250B of Chinese goods & threatened to add more.  But Pres Trump agreed to leave 10% tariffs on $200B of goods in place this month rather than raise them to 25% as planned.  China also slapped its own duties on US imports but later in the year agreed to purchase US agricultural & other products.  A Treasury spokesman working with the trade team said that talks are “nowhere near completion.”  “Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China,” the spokesman said.  “This an ongoing process with the Chinese that is nowhere near completion.”

US officials debate lifting tariffs on China to get a trade deal: WSJ

Neel Kashkari pres of the Federal Reserve Bank of Minneapolis & a critic of big banks said the biggest US banks are “unquestionably” safer than they were before the 2007-2009 financial crisis.  The Fed's ability to use monetary policy to safeguard the financial system is about even with the pre-crisis era, he also said, because although low interest rates mean the Fed has less room to cut to offset a downturn, the Fed now has plenty of experience with non-traditional tools like quantitative easing that it can use as well.  Kashkari made the comments in a public debate held by Intelligence Squared US, in which he & Harvard University professor Jason Furman were defending the notion that the financial system is safer than it was 10 years ago.

Fed's Kashkari says big banks are safer now than before the financial crisis

The Philadelphia Fed manufacturing index rose to a seasonally adjusted reading of 17 from a 2-year low of 9.1 in the prior month.  Any reading above zero indicates improving conditions.  The forecast  expected a reading of 10.  Below the headline, the new orders index rose 8 points to 21.3, its highest reading in 6 months, & the shipments index fell 1 point to 11.4.   Mixed readings on regional manufacturing at the start of the year.  The Empire State factory index, released Mon, slumped to 3.9 in Jan, the lowest reading since May 2017.  So the Philly Fed index may remove some concerns Q1 economic slowdown may be sharper than forecast.

Philadelphia Fed manufacturing index rebounds in January

Gold futures pulled back from the nearly 2-week high they settled at yesterday, as the psychologically important $1300 line remained elusive for another session.   Gold for Feb edged down by $1.50 (0.1%) to settle at $1292 an ounce.  Yesterday it closed at $1293, on the back of political turmoil in the UK & US.  Political uncertainty continues to underpin gold, however.  Investors were increasingly worried that a US partial gov shutdown entering its 27th day would deliver a more lasting impact to economic growth in Q1.  Financial markets also awaited next steps for Britain after Theresa May's gov narrowly survived a no-confidence vote on Wed as she attempts to forge a path for the UK's exit from the EU.

Gold pulls back from 2-week high as $1,300 mark proves elusive

Stocks shot up after midday on reports that the US was considering ending China tariffs, but that story faded fast.  So did the stock market advance.  There was a little buying into the close.  Who knows what that means?  These negotiations involve huge issues which will likely take some time to resolve.  Meanwhile the gov shutdown is going nowhere with ZERO negotiations or even a likelihood for talks.  Then there is Britain & its unsettled Brexit move.  The VIX (volatility index) was pretty much steady in the 18s.  That compares with the low teens in "the good old days" last year.  The Dow is still 2½K above the Christmas eve low with only limited profit taking along the way.  That's an indication of overbought (i.e. due for a correction).  Earnings season should kick into high gear next week.

Dow Jones Industrials

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